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Adam Smith’s Public Choice Economics

Sarah Skwire is wonderfully correct in claiming that the understanding of what today we call public choice is as old as our history, even if the expressions of that understanding may not be identical to Gordon Tullock’s. The Roman institution of consulship, in which the leadership of the nation was split between two consuls who had power for one year, was created with the goal of limiting lobbying and power-grabbing. The use of lot to assign political positions in ancient Greece had the same objective.

According to Skwire’s interpretation of Tullock, a first watershed for public choice comes with the Enlightenment, since there seems to be a “pre-Smithian” and a “post-Smithian” phase in its description of thinking about political economy. Why, then, is the name of Adam Smith so dominant in what came before Tullock?

James Buchanan, co-author with Gordon Tullock and recipient of the Nobel Prize in Economics for his contributions in public choice, recognized the depth of Adam Smith’s public choice insights. The Wealth of Nations ([1776] 1981) is not only the book that unofficially started economics, but it can also be considered a public choice treatise. Smith himself thought of it as “the very violent attack I had made upon the whole commercial system of Britain” (Letter to Andreas Holt, 26 Oct. 1780). And those attacks were based on the observation that British merchants and manufacturers lobbied so much and so successfully that they created distortions to the natural system of liberty, harming the majority of the population and deterring economic growth.

In Smith’s account, land owners were too concerned with showing off their riches to care about things other than ornaments. Farmers and workers may have known their interest but were seldom in a position to lobby. They were many, and they were spread throughout the country. Merchants and manufacturers, on the other hand, knew their interest well and tended to be concentrated in towns. They were few and lived in proximity to each other. They could more easily conspire against the public and indeed this is what they did.

The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the publick, who have generally an interest to deceive and even to oppress the publick, and who accordingly have, upon many occasions, both deceived and oppressed it. (WN I.ix.p.10).

Smith claimed that all sort of laws and regulations were the result of the lobbying of merchants and manufacturers, from restrictions in the labor market such as apprenticeships to the entire creation of the British Empire itself:

To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow citizens, to found and to maintain such an empire. […] The maintenance of this monopoly has hitherto been the principal, or more properly perhaps the sole end and purpose of the dominion which Great Britain assumes over her colonies (WN IV.vii.c.63-64).

This was by no means a perverse endorsement of imperial grandeur, but rather a severe condemnation of it because of its origins in special interests:

the cruellest of our revenue laws, I will venture to affirm, are mild and gentle, in comparison of some of those which the clamour of our merchants and manufacturers has extorted from the legislature, for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be all written in blood (WN IV.viii.17. Emphasis added).

The blood Smith referred to was literally the blood of his fellow-citizens who died to create and defend the monopolies that benefitted the few privileged interest groups.

Are there solutions to these forms of what today we call crony capitalism? Are there ways to reduce the influence of the big merchants and manufacturers on the legislature? Yes, but not easy ones. Smith was well aware that once privileges are in place, it is very difficult to take them away.

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists (WN IV.ii.43. Emphasis added).

Smith’s advice was not to offer privileges to begin with. But how can the legislature defend itself against these attacks? If competition is the answer, how do we get there, given all the incentives that exist to try to limit it?

Here is where I think Buchanan and Tullock took separate routes. Tullock shut the morality door and did not answer the question. Buchanan, despite claiming that public choice was the study of “politics without romance,” left the morality door open. Just like Adam Smith did. If books like the Wealth of Nations were written and read, Smith seemed to imply, the legislature may be enlightened, it may see the beauty of the natural system of liberty, understand its force and beneficial effects, and hopefully become a guardrail to contain the reckless powers of interest groups. Not much else seems to be able to provide that break to the avidity of the big merchants and manufacturers. Similarly Buchanan told us that “Perhaps more important than formal constitutional changes are changes in ethical attitudes that would make attempted reforms workable” (Buchanan [1996] 2001, 275. Emphasis added).

Of course neither Smith nor Buchanan were Pollyanna. They did look at “politics without romance.” Policy makers ought to be assumed self-interested. There should be institutional constraints that channel the self-interest of lobbyists in ways to prevent or at least limit capturing by special interests; and those constraints should be designed with the assumption that politicians are self-interested and not public spirited, and will fall under the attacks of special interests. Yet both Smith and Buchanan seemed to appeal to a sort of moral suasion to do the job. Theirs is an appeal to a different kind of self-interest, a self-interest that takes satisfaction in doing the right thing, in listening to the voice of “the man within” us, of an impartial spectator who approves of what is praiseworthy and disapproves of what is blameworthy.

Also from this issue

Lead Essay

Sarah Skwire looks at the implicit economics of Shakespeare’s plays, in which self-interested politicians vie with one other for advantage. These plays, particularly the histories, reflect a keen awareness of the uses of politics for personal advantage, and of the incentives that work on state agents just like they work on the rest of us. Skwire argues that Shakespeare falsifies the notion that the economic way of thinking was an 18th-century construction, and that premodern people did not think about costs and benefits in the same ways that we now do.

Response Essays

Ross Emmett agrees with Sarah Skwire that literature can be informative about public choice, and that pre- and early modern authors often showed more understanding of the problems of political economy than later critics might suppose. He proposes some origins for Gordon Tullock’s curious assertion that premodern authors had a romantic view of politics. These include a change in historical ideas about political economy that was first described by Frank Knight, as well as a litany of 19th- and early 20th-century English-language authors including Arnold Toynbee, William Wordsworth, John Ruskin, and George Bernard Shaw, all of whom did much to romanticize our ideas about politics.

Maria Pia Paganelli examines the theme of rent seeking in Adam Smith’s Wealth of Nations. Why was it, Smith asked, that businessmen were the most likely to ask for government favors, and why had they demanded – and received – an expensive and dangerous empire? The reason was simple self-interest, he concluded, combined with the unequal distribution of costs and benefits these measures entailed. Although hints of public choice can be found earlier, it’s with good reason that Smith is seen as an important figure.

Michelle Vachris argues that Gordon Tullock did make a good point when he characterized premodern political economists’ thinking as romantic. The paradigm of the bad legislator in the Theory of Moral Sentiments, for example, was not a self-interested or venal official, but rather the “man of system” who wished to achieve a particular plan of society. Literature, though, may have been more sophisticated; Vachris looks to Mark Twain and Charles Dudley Warner for several examples of public choice-like thinking in the nineteenth century.

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